Understanding Carbon Offsets

Compliance Offset Programs

Mandatory, also referred to as compliance, systems are regulated by national, regional or provincial law and mandate emission sources to achieve compliance with GHG emission reduction requirements. For regulated emissions sources, offsets can serve as an alternative compliance mechanism to direct emissions reductions or allowances (tradable permits allowing a quantity of emissions) that emission sources can use to meet their emissions cap. Because compliance program offset credits are generated and traded for regulatory compliance, they typically experience commodity pricing, where all offset credits in a particular program are priced similarly based on the dynamics of supply-and-demand, regardless of project type and other characteristics.

In most cases, compliance programs exist as regional or national cap-and-trade emission trading schemes, such as the Regional Greenhouse Gas Initiative (RGGI) or the European Union Emissions Trading Scheme (EU ETS). The World Bank Carbon Pricing Dashboard tracks which countries have implemented compliance offset programs and other carbon pricing instruments. Read the Carbon offsets after 2020 page for information about international carbon offset mechanisms.